Selling Pork Bellies Futures

Tag : Frozen Pork Meat

"Pork bellies, Sell, Moritmer, Sell!" This immortal line from one of the funniest movies ever made, Trading Places , still holds its humor 25 years later. This is where I first heardthe term "pork bellies", the name alone elicited howls of laughterfrom the theater. What exactly are pork bellies and how are theytraded? Here's a brief overview of the pork belly market and whatyou need to know to get started trading in it.

The actual full name for pork bellies is Frozen Pork belly Futures.A Pork belly is the stomach meat of a pig. Bacon in the UnitedStates and several other countries is made from Pork bellies. It isalso very popular in China and Korea where it is served as entireslabs and not sliced as finely as bacon. An average Pork bellyweighs about 13 pounds and since they are frozen have a very longshelf life. Belly futures started trading on the CME way back in1961 and were created as a way meat producers and large scale userscould hedge against volatile live hog prices.

One futures contract reflects 40,000 pounds of Pork bellies cut andtrimmed, in other words, ready to sell. Each point is worth .0001per pound or $4.00. They are traded on the floor and electronicallyvia GLOBEX in the 5 months of February, March, May, July, andAugust. The ticker symbols are PB on the floor and GPB via GLOBEX.The exchange imposes price limits of $0.20, $0.30 and $0.45 perpound, however these limits are expandable under exchange rule8302D. The position limits are 1000 contracts in all contractmonths combined or 800 contracts in any one month. These limitsinclude both long and short positions and are designed to preventattempts to corner the market. The minimum fluctuation or tick sizefor Pork bellies is $10.00. The margin requirement is $1620.00 percontract to initiate a position and $1200.00 to maintain theposition.
As you can see from the daily chart, 'bellies seem to be basingaround the 72-74 area and may be setting up for a run back into thelow 80's. Looking at the long term chart, it seems to trade in avery defined range up and down.